Insana Capital Partners' 'Legends' Hedge Fund To Close

by: Kirk Lindstrom August 24, 2008    
Kirk Lindstrom

Kirk Lindstrom

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CNBC's Ron Insana (profile and photo courtesy of CNBC) is folding the tent on his Insana Capital Partners L.P. hedge fund called "Legends." On August 8, 2008 sent a letter to his investors to announce they were closing shop and taking a job with Steven Cohen of SAC Capital.

"Our current level of assets under management, coupled with the extraordinarily difficult capital-raising environment, make it imprudent for Insana Capital Partners to continue business operations."

Ronald G. Insana left CNBC in March 2006 to set-up Insana Capital Partners L.P. This was a hedge fund known as a "fund of funds." Ron had the idea to use his fame to charge people hedge fund fees to select hedge funds. At the time I thought this was much like CMGI at the peak of the internet bubble. CMGI as an over valued internet holding company that invested in internet stocks then got a similar premium for its investments. According to the NY Times article, "Running a Hedge Fund Is Harder Than It Looks on TV," there was an advantage of paying Insana, access to great funds:

"His clients would be invested in SAC Capital, managed by Steven A. Cohen; Icahn Partners, managed by Carl C. Icahn; or the Renaissance Technologies Corporation, run by James H. Simons, perhaps the most successful hedge fund manager on the planet. These funds are typically closed to the public."

Insana raised $116 million and "only" lost 5% over a period the S&P500 fell more than 15%. This is good performance for someone like me who writes an investment newsletter that tries to beat the S&P500 but that is not the type of performance hedge fund investors pay for. To get the big fees, hedge fund investors expect their managers to have been short the market and show a profit. Of course, readers of my blog know I think market timing is next to impossible to do over and over so I rely on asset allocation and stock selection, but there seems to be an endless supply of suckers who will pay huge fees to take excessive risk.

Hedge funds are great things to manage especially if you get the standard 2% of assets plus 20% of profits fee structure. The fee structure only benefits the manager and encourages excessive risk taking. For example: A savvy hedge fund manager could offer two funds called "Red Fund" and "Black Fund." He could take 2% of funds collected for both then take the money for each fund and put them on the red and black bets at Las Vegas. If Black comes up, he would get 20% of the winnings from the black bet plus the 2%. Even better, he'd be able to market that fund again to the investors to get more money to do it again since he was so successful. Of course the Red Fund investors would be very unhappy to have all their money vanish.

Ron shows an extreme level of arrogance as a commentator on CNBC so it must hurt him to have been caught in the hedge fund bubble after writing a book called “Trendwatching: Don’t be Fooled by the Next Investment Fad, Mania, or Bubble." I guess even the smartest people find the huge fees available to hedge fund managers hard to resist.

Disclosure: None

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This article has 8 comments:

  •  
    Aug 24 04:30 PM
    On the one hand, I am sorry to see this happen to Ron; on another hand I have sensed his "arrogance" in recent appearances on CNBC; on another hand, I would welcome him back as an anchor.
    Reply | Link to Comment
  •  
    Aug 24 04:39 PM
    The "Red Fund/ Black Fund" idea sounds like a winner. Are you sure somebody hasn't done it already.
    Reply | Link to Comment
  •  
    Aug 24 06:30 PM
    Many have tried new areas for their expertise and failed. But they don't quit. These are tough times in the markets right now. Had he done this at a more positive time, I think he would have done well. I admire him for giving it a try. A lot of folks are afraid to step out and venture into new areas.
    Reply | Link to Comment
  •  
    Aug 24 07:20 PM
    I for one am glad to see him dragged thru the crap.

    Ron Insana deserves what he gets.

    Here is a man, who was a financial journalist with connections. That is all.

    He had no MBA, never managed money in his life. His arrogance coupled with his big headedness of thinking he was a celebrity (a disease that almost all the CNBC suffer from) was his downfall.

    He was a journalist. That is all. When you think about it, he really had no business doing nothing more than reporting the news. However he confused years of working at CNBC with actually understanding economics and real asset management. That is why I laugh every time I see him mentioned on CNBC as their "senior analyst".

    Analize this Ron. You are done. It couldn't have happened to a nicer schmuck. Don't forget, drop to your knees each work day and "thank" Steve Cohen for saving your butt and lessening the pain of embarrassment.

    Now Insana will be announced on CNBC as "SAC Partners senior analyst".
    Reply | Link to Comment
  •  
    Aug 24 11:02 PM
    "A lot of folks are afraid to step out and venture into new areas."

    Actually, few people are afraid to take risks with other people's money. "Sorry I lost you 5% (so far), now pay me my $2,000,000". Nice scam, Ron.
    Reply | Link to Comment
  •  
    Aug 24 11:49 PM
    Insana has been right on the market lately, especially after the recent crisis was exposed. However, we don't know how his fund performed relative to his on-air wisdom. That's the rub. If you were an investor in his "fund of funds", what are you thinking when he's on CNBC spouting off about the dire state of the credit market while at the same time the fund's managers are long subprime.
    Reply | Link to Comment
  •  
    Aug 25 07:56 PM
    Hedge funds remind me of cocaine. People still do those things? 2% and 20% is a con game for suckers that have too much money to waste. It is a fantastic gig for hedge fund managers (glorified paper shufflers) and those brokers that sell this crap to deep pockets.
    Reply | Link to Comment
  •  
    Sep 28 06:46 PM
    Nice 2 C that Stevie Boy has a spot for Ron......He oughtta put him wif da $12,000,000.00 shark or at leastz in da same tank.........Doz guys swimin wit dat shark an it beginin to STINK like dis market..........and des stinkin timez
    Reply | Link to Comment
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